Short Sale Basics

Short Sale Basics

Two primary reasons for a lender to approve a short sale are either that the homeowner is enduring a hardship or there won’t be enough available equity in the property to cover the cost of the sale and pay off the current mortgage. Hardship can be cause by a recent death or divorce, medical emergency, reduction in income/loss of employment, or a job relocation to a new city. The homeowner will prepare a package of financial documents to submit to the lender for their review. This package usually consists of: an authorization letter which will allow the seller’s agent to talk with the bank, seller’s hardship letter, a HUD1 or preliminary net sheet, 2 years of tax returns, completed financial statement, 2 years of W-2’s, last 2 months of bank statements, 30 days of payroll stubs, and a list of comparable home sales or a comparative market analysis.

A buyer should consult with their agent and have the agent pull comparable sales prior to submitting an offer to the bank. The bank will be seeking an offer that is of comparable market value to encourage the possibility of receiving multiple offers. Once the seller accepts an offer from a buyer, their listing agent will need to send the following information to the bank: the listing agreement, purchase offer, the buyer’s approval letter, proof of necessary funds, copy of the earnest check and a seller’s short sale package.

Once the short sale is received by the bank, it will generally take 10-30 days for them to acknowledge that they have received the file. In approximately 7-60 days of receiving the short sale package, a negotiator will be assigned to that particular file. The bank will then order a broker’s price opinion of the property. A second negotiator could then be given the file which can take up to another 30 days. The information is then reviewed or sent to a Pooling Servicer Agreement, which can take an additional 14-30 days. Frequently the bank will require that all parties of the short sale, sign an arm’s length affidavit. Lastly, the bank will then issue an approval letter for the short sale.